What are my rights if I own a corporation 50/50 with a partner and they met with investors behind my back to determine my fate in the company?

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What are my rights if I own a corporation 50/50 with a partner and they met with investors behind my back to determine my fate in the company?

They are offering me a 5% stake plus a small buyout. Do I have any rights or options here? If I do not sign over my shares they will simply start a new corporation. If I do accept the 5%, can anyone take that away from me for the duration of the company’s legitimacy?

Asked on July 10, 2015 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

Anyone has a right to meet with anyone they like, and discuss anything they like, unless they signed a contract limiting that right, so a 50% partner can discuss the other partner's "fate" without him or without telling him. Anyone can offer you any deal they like, just as you are free to reject it. In the absence of relevant terms in a partnership agreement or other contract, a partner (or owner of a corporation) can walk away from his partner/co-owner and start a new corporation (people are generally free to leave, start, etc. businesses or employment)--if there is anything in writing to the contrary, however, in a partnership, operating, or other written agreement, you can enforce its terms in court if need be.

If you take the deal, you will be a minority owner. They can't simply take the 5% away from you, but there are certainly ways to make the 5% worthless or valueless--someone owning 5% simply can't stand up to the majority owners of a corporation. If you don't have any good options, since, as you note, your partner could leave and go off with the investors to start a new company, you may have to take this offer so as to get something, but since you probably should not trust these people or your "partner," and only count on the actual buyout as being your "share."

Of course, if your partner leaves your partnership (i.e. the corporation you currently own), you'll still have it; if it has value (e.g. intellectual property, sales or market share, real estate, inventory, etc.) you could do the same--look for new investors to come in with you. If you have faith in yourself and your corporation, that may be your best option.


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